August 09, 2011

Scope 3: Pivoting to Material Efficiency

The upcoming release of the scope 3 emissions reporting standard from the GHG Protocol is significant for two reasons. One is the more obvious reason: The larger part of emissions resulting from a company’s operation usually belongs in scope 3, so this is an essential component of a complete corporate GHG inventory. But many companies across the economy will require a strong business case for undertaking this potentially arduous task, so we need another reason for even talking about this.

The second and more important reason for developing scope 3 inventories is to open up entirely new opportunities for efficiencies and cost savings – and certainly emission reductions. The traditional scope 1 and scope 2 inventories shine a spotlight on energy consumption and provide a basis for managing energy use within an organization – which can lead to meaningful energy efficiency improvements, adoption of renewable energy sources, and so on. Scope 3 inventories can potentially do the same for material use, and allow us to pivot from energy efficiency to material efficiency.

For companies in many industries, scope 3 emissions will be dominated mainly by the inflow of materials from the upstream supply chain and, to a smaller extent, the outflow of materials or products downstream. The upstream emissions will be a result of the embodied energy and process emissions associated with the extraction and manufacture of the incoming materials. The downstream emissions will depend on the fate of the materials after they leave the organizational boundary, including how the materials are treated at the end of life. Leaving out the use-phase emissions – which can be quite large for companies making products such as clothes and appliances, and must be addressed primarily at the product design stage – and other sources such as business travel, making a significant dent in scope 3 emissions will require a new focus on material efficiency.

What does material efficiency mean? On the upstream side, it means using smaller amounts of material inputs to produce the same quantities of finished products or to deliver the same utility. It can also include use of alternate raw materials that may have lower environmental footprints, such as certain engineered materials, recycled materials and refurbished components. Another example is the use of redesigned packaging that saves materials upstream while allowing for more optimized product distribution downstream. Material efficiency can also be improved by diverting scrap and used materials from the normal waste stream: one company’s manufacturing waste could become someone else’s raw material. Most of these resource savings and emission reductions are capable of producing concomitant economic benefits as well.

How large is the economy-wide potential for emission reductions and cost savings? A recent study conducted for Defra (the UK department for environment) calculated that UK businesses could save over $63 billion annually by implementing waste reduction through process efficiencies – essentially delivering the same products while using less material – and nearly half of that would be available immediately at little or no cost. If we were to extrapolate this to the size of the US economy, waste reduction alone could yield annual savings of over $400 billion and cut GHG emissions by 6-7 percent.

Opportunities for waste reduction cut across many sectors in the economy. The WellMet2050 program at the University of Cambridge points out that about one-quarter of liquid steel and aluminum never make it into a product and most products could use one-third less metal without loss of performance. Altogether, the potential for reducing metal use is as high as 50 percent.

A recent analysis by the Waste & Resources Action Program showed that nearly $20 billion worth of food and beverages are wasted annually in the UK (including waste at the consumer level), amounting to three percent of national GHG emissions on a life cycle basis. Our internal study of US food waste came to a similar conclusion: approximately two percent of GHG emissions in the US could be attributed to wasted food. Food waste due to trimmings, spoilage and other reasons can be as high as 10 percent in commercial food service.

It is also important to recognize that not all waste is equal. When the waste stream consists of many different materials or commodities (as in the case of food waste), the economic values and environmental footprints of the waste components can vary widely. This, of course, implies that waste reduction efforts must be prioritized by material or waste type in order to deliver the highest returns.

Direct reduction of material use and waste is just one part of the material efficiency solution. Given that US industrial facilities generate 7.6 billion tons of solid waste each year, waste diversion is orders of magnitude larger in terms of material flow but is thought to have much smaller economic value. It is likely that valuable materials in useful concentrations are embedded in waste streams. Although markets are emerging where waste can be traded as useful raw material, most companies have limited knowledge of their waste composition and how to separate out the marketable portion of the waste stream.

All of this suggests that material efficiency presents a potentially large business opportunity, but we have thus far lacked the framework and tools to systematically address it. A detailed scope 3 GHG inventory can establish a baseline for emissions from material use, and highlight regions of high emissions both upstream and downstream. In conjunction with other analytical tools capable of suggesting optimizations in the flow and use of materials, scope 3 inventories can be part of an overdue solution for advancing the efficiency of material use.